RBI keeps rates unchanged, allows retail investors to open gilt accounts

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RBI maintained status quo on the repo and reverse repo rate, and also promised an accommodative stance as long as necessary to revive growth in its bi-monthly meeting of the current financial year.

The regulator will also reverse the CRR (Cash Reserve Ratio) cut from the current 3% to 4% in two phases. Effective March 27 the CRR will rise to 3.5% and normalise to 4% w.e.f May 22, 2021. “The stance of liquidity management continues to be accommodative and in consonance with the monetary policy stance,” said RBI Governor Shaktikanta Das.

Commenting on CRR reversal by RBI Ashutosh Khajuria, Executive Director & CFO Federal Bank said that, “So CRR cash reserve ratio was brought down from 4% to 3% in view of COVID-19. Now, in this policy, they have said that this will be reinstated two parts. So, the full 100 basis points would be able to remove liquidity of something like 1.5 lakh crores from the system.”

On the growth front, RBI expects real GDP to grow at 10.5% in 2021-22. “Budget has provided strong impetus for revival of health, infra sectors. Budget will reinvigorate domestic demand. The Atmanirbhar stimulus given earlier has started working its way through. Projected increase in capex by govt augurs well for investment demand, improving credibility of quality of spending,” said Das.

On inflation, while the central bank signalled that the vegetables prices were likely to remain soft in the near term and inflation would be revised to 5.2 per cent in Q4FY21. “The government would review the inflation target for RBI by March 2021 and that inflation targeting had worked well,” said Das.

In a major policy announcement, RBI said it will also tap retail investors to fund government borrowing, giving direct access to retail investors to invest in government securities. “We will provide retail investors online access to the gilt market via Retail Direct. To provide retail investors access to the primary and secondary government securities market. The allowance of retail investors together with HTM (Held To Maturity) relaxation will facilitate smooth completion of govt’s borrowing programme in FY22,” said Das.

“I think the way platforms provided by various brokerages to retail investors, where they can see two-way quotes and place orders to sell or buy shares. Similar platforms would be provided by the intermediaries and allow any retail investor to be their member and trade on that it’s similar to how the shares are being traded presently, but that is because of the technology improvement. Though efforts were being made in the past, we did not have that strong technology to support it,” said Khajuria of Federal Bank.

In his closing remarks, RBI governor Shaktikanta Das said, “going forward the Indian economy is poised to move in only one direction which is upwards. It is our strong conviction backed by forecasts, that in FY22 we will undo the damage that Covid-19 has inflicted the economy. After the chaos and despair of the year gone by through which we have sailed together, we shall continue to sail ahead.”